July 25, 2006
By Daniel J. Mitchell, Ph.D.
Are your tax records
safe? Good question.
The Treasury Department
last month admitted investigating thousands of cases of IRS
employees improperly snooping through taxpayer records. And
although this led to 1,600 "adverse personnel actions" and 126
criminal prosecutions, Treasury officials concede "there has not
been a noticeable decrease" over the last eight years in the number
of IRS bureaucrats who gain unauthorized access to confidential
Earlier in the year,
the Government Accountability Office outlined similar problems. The
GAO report "identified a number of internal control issues that
adversely affected safeguarding of tax receipts and information."
These included "enforcement of IRS contractor background
investigation policies" and "procedures for handling taxpayer
receipts and information by couriers."
According to GAO, the
IRS even had problems "safeguarding sensitive systems and equipment
in lockbox banks."
The IRS' inability to
protect taxpayer information is troubling, to say the least. In an
age of growing identity theft, sophisticated criminal enterprises
have a big incentive to exploit the sloppy practices of the tax
collection agency. Every tax return has all the information needed
to bilk an unfortunate victim, through the use of phony credit
cards or other scams. (U.S. taxpayers, though, are fortunate
compared to their Latin American counterparts, who have family
members kidnapped for ransom when bureaucrats sell confidential
info to criminal gangs.)
Yet IRS bosses have
displayed a rather cavalier attitude about the behavior of their
employees. One former commissioner told the Wall Street Journal
that, "So long as income-tax returns are filed, with all the
inviting details they provide, some curious people -- and some with
worse motives -- are going to try to look at them." I guess this
means the rest of us should shrug our shoulders and allow our
privacy to be violated.
The IRS' current
commissioner has even less regard for taxpayer privacy. He actually
wants to give IRS information to other government agencies.
Fortunately, this radical proposal has made little headway. Other
government agencies, such as the Securities and Exchange
Commission, seem uninterested, and even the IRS' National Taxpayer
Advocate opposes the scheme.
Bureaucrats who rummage
through private tax records should be vigorously prosecuted, and
senior-level IRS officials who seek to increase the vulnerability
of taxpayer information should be dumped in the unemployment line.
But these actions would merely address the symptoms. The real
problem is the tax code.
Specifically, the code
requires the collection of far too much personal information by far
too many people (there are more than 100,000 IRS employees),
dramatically increasing the likelihood that dishonest people will
enjoy access to our private information.
This is one of the
reasons fundamental tax reform is such a good idea. Imagine if
America had a simple and fair flat tax. Not only would this boost
economic growth and make the U.S. more competitive in the global
economy, it would dramatically reduce the information we're forced
to divulge to the IRS.
The hundreds of forms
required by the current tax code would shrink to two postcard-sized
forms, and individual taxpayers would need to tell the government
only the size of their household and the amount of labor income
they earned. (Capital income such as dividends and interest would
be subject to withholding tax at the business level, so there would
be no need to report that income on the individual
Equally important, a
flat tax would allow a dramatic downsizing of the IRS. Instead of
100,000 employees (bigger than the CIA, FBI and DEA combined), the
tax collection agency could operate with a skeleton staff. The Tax
Foundation estimated several years ago that a flat tax would reduce
compliance costs by more than 90 percent. Assuming that IRS
staffing needs were similarly affected, the number of bureaucrats
would drop to fewer than 10,000.
A simple tax code and
fewer bureaucrats would not completely eliminate problems at the
IRS, to be sure, but it would be a big step in the right direction.
Blocking unauthorized snooping and protecting against identity
theft may not be the biggest reasons to adopt a flat tax. Other
factors -- global competitiveness, reducing political corruption,
fairness -- surely matter more.
But improving the
security of our private information is a nice fringe benefit to
fundamental tax reform.
Mitchell is the McKenna senior fellow in
Political Economy at The Heritage Foundation.
Distributed nationally on the McClatchy Tribune News Service
Are your tax records safe? Good question. The Treasury Department last month admitted investigating thousands of cases of IRS employees improperly snooping through taxpayer records.
Daniel J. Mitchell, Ph.D.
McKenna Senior Fellow in Political Economy
Read More >>
Heritage's daily Morning Bell e-mail keeps you updated on the ongoing policy battles in Washington and around the country.
The subscription is free and delivers you the latest conservative policy perspectives on the news each weekday--straight from Heritage experts.
The Morning Bell is your daily wake-up call offering a fresh, conservative analysis of the news.
More than 450,000 Americans rely on Heritage's Morning Bell to stay up to date on the policy battles that affect them.
Rush Limbaugh says "The Heritage Foundation's Morning Bell is just terrific!"
Rep. Peter Roskam (R-IL) says it's "a great way to start the day for any conservative who wants to get America back on track."
Sign up to start your free subscription today!
The Heritage Foundation is the nation’s most broadly supported public policy research institute, with hundreds of thousands of individual, foundation and corporate donors. Heritage, founded in February 1973, has a staff of 275 and an annual expense budget of $82.4 million.
Our mission is to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense. Read More
© 2015, The Heritage Foundation Conservative policy research since 1973